Dodd-Frank Act

Nasdaq and NYSE Clawback Rules

On October 26, 2022, the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”) (see HERE). The Clawback Rules implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating the clawback of compensation under certain circumstances as a listing qualification.

I’ve written about the Clawback Rules a few times, including SEC guidance (see HERE) but have not detailed the final Nasdaq and NYSE rules, until now.

Nasdaq Clawback Rules

Nasdaq listing Rule 5608 sets forth the listing requirements related to the recovery of erroneously awarded compensation. The language conforms closely to Rule 10D-1 and the SEC release, including explanations on materiality and “litter” restatements that are material based on facts and circumstances and existing judicial and administrative interpretations.

As allowed by Rule 10D-1, the Nasdaq rule provides that a company would not be required to pursue

November 5, 2024

SEC Issues Staff Report On Accredited Investor Definition

On December 15, 2023, the SEC issued a staff report on the accredited investor definition. The report comes three years after the most recent amendments to the accredited investor definition (see HERE).

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) requires the SEC to review the accredited investor definition, as relates to natural persons, at least once every four years to determine whether the definition should be modified or adjusted. The last two reports can be read HERE and HERE.

The current report focuses on the composition of the accredited investor demographic, including since the last definition amendments; the extent to which accredited investors have the financial sophistication, ability to sustain the risk of loss of investment, and access to information that have traditionally been associated with an ability to fend for themselves; and accredited investor participation in exempt offerings.

I’ve included the complete current accredited investor definition at the end of this blog.

Background

All

January 23, 2024

SEC To Shorten Settlement Cycle

On February 15, 2023, the SEC adopted final rules shortening the standard settlement cycle from two business days (T+2) to one business day (T+1). A shorter settlement cycle will reduce the credit, market and liquidity risks in securities transactions. The SEC previously shorted the standard cycle from three days (T+3) to T+2 in 2017 (see HERE) and at that time, and in speeches and rule making agendas since then, has consistently indicated efforts to move to T+1.

In addition to shortening the standard settlement cycle, the new rules also shorten the standard settlement cycle for firm commitment offerings priced after 4:30 p.m. from four business days (T+4) to T+2. However, the rules do allow for underwriters and issuers to agree to an alternative settlement date, which is helpful in completing the numerous closing documents and processing steps that occur between the pricing and closing of deals.

The final rules will improve the processing of institutional trades by requiring

May 23, 2023

Guidance On Executive Compensation Clawback Rules; NYSE And Nasdaq Issue Proposed Rules

On October 26, 2022, the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”) (see HERE). The Clawback Rules implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating clawback of compensation under certain circumstances as a listing qualification. The proposed rules were first published in July 2015 (see HERE) and have moved around on the SEC semiannual regulatory agenda from proposed to long-term and back again for years.

The Clawback Rules add a check box to Forms 10-K, 20-F and 40-F to indicate whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis. Although the check box has already been added to the Forms, the new Clawback Rules are not effective until November 28, 2023. As such, the SEC has issued guidance regarding compliance with the check box in

April 4, 2023

SEC Adopts Final Executive Compensation Clawback Rules

One year after reopening the comment period, and seven years after first publishing proposed rules, on October 26, 2022, the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”). The Clawback Rules implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating clawback of compensation under certain circumstances as a listing qualification. The proposed rules were first published in July 2015 (see HERE) and have moved around on the SEC semiannual regulatory agenda from proposed to long-term and back again for years.

The final rules require a listed issuer to file the policy as an exhibit to its annual report and to include disclosures related to its recovery policy and recovery analysis where a recovery is triggered. New Exchange Act Rule 10D-1 directs national securities exchanges and associations to establish listing standards that require a listed company to: (i) adopt

November 15, 2022

SEC ReOpens Comment Period For Pay Versus Performance

On January 27, 2022, the SEC re-opened the comment period on proposed rules under the Dodd-Frank Act requiring disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance (“Pay vs. Performance”). The rules were previously proposed in April 2015, and have languished since then (see HERE). In addition to re-opening the comment period on the 2015 proposed rules, the SEC has expanded the proposal to include additional performance metrics.

The SEC administration under Gary Gensler has been actively tacking compensation and insider trading related issues recently including re-visiting executive compensation clawback rules (see HERE); publishing new guidance on disclosures and accounting for spring-loaded compensation awards (see HERE); proposing amendments to Rule 10b5-1 insider trading plans (see HERE); and proposing new share repurchase program disclosure rules (see HERE).

Background

Section 953(a) of the Dodd-Frank Act added Section 14(i) to the Securities Exchange Act of 1934

February 22, 2022

SEC Re-Visits Executive Compensation Clawback Rules

As expected, on October 14, 2021, the SEC re-opened the comment period on proposed rules on listing standards for the recovery of erroneously awarded executive compensation (“Clawback Rules”). The Clawback Rules would implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating clawback of compensation under certain circumstances as a listing qualification. The proposed rules were first published in July 2015 (see HERE) and have moved around on the SEC semiannual regulatory agenda from proposed to long-term and back again for years, but finally seem to be moving forward. Although the proposed rule remains unchanged from the July 2015 version, the SEC has added a few questions for comment in its re-opening release.

Background

There are currently existing rules which require the recovery of executive compensation and disclosure of such policies. In particular, Section 304 of the Sarbanes-Oxley Act of 2002 (“SOX”) requires the CEO and CFO to reimburse

November 23, 2021

SEC Rules Requiring Disclosures for Resource Extraction Companies

As required by the Dodd-Frank Act, in December 2020, the SEC adopted final rules requiring require resource extraction companies to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals. The last version of the proposed rules were published in December 2019 (see HERE )The rules have an interesting history. In 2012 the SEC adopted similar disclosure rules that were ultimately vacated by the U.S. District Court. In 2016 the SEC adopted new rules which were disapproved by a joint resolution of Congress. In December 2019, the SEC took its third pass at the rules that were ultimately adopted.

The final rules require resource extraction companies that are required to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) to disclose payments made by it or any of its subsidiaries or controlled entities, to the U.S. federal government or foreign governments

July 6, 2021

SEC Spring 2020 Regulatory Agenda

In July 2020, the SEC published its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The Office of Information and Regulatory Affairs, which is an executive office of the President, publishes a Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”) with actions that 60 departments, administrative agencies and commissions plan to issue in the near and long term. The Agenda is published twice a year, and for several years I have blogged about each publication.

Like the prior Agendas, the spring 2020 Agenda is broken down by (i) “Pre-rule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame has decreased to 42 items as compared to 47 on the

August 18, 2020

SEC Proposes Additional Disclosures For Resource Extraction Companies

In December 2019, the SEC proposed rules that would require resource extraction companies to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals. The proposed rules have an interesting history. In 2012 the SEC adopted similar disclosure rules that were ultimately vacated by the U.S. District Court. In 2016 the SEC adopted new rules which were disapproved by a joint resolution of Congress. However, the statutory mandate in the Dodd-Frank Act requiring the SEC to adopt these rules requiring the disclosure remains in place and as such, the SEC is now taking its third pass at it.

The proposed rules would require domestic and foreign resource extraction companies to file a Form SD on an annual basis that includes information about payments related to the commercial development of oil, natural gas, or minerals that are made to a foreign government or the U.S. federal government.

Proposed Rule

The

February 25, 2020

SEC Fall 2019 Regulatory Agenda

In late 2019, the SEC published its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The Office of Information and Regulatory Affairs, which is an executive office of the President, publishes a Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”) with actions that 60 departments, administrative agencies and commissions plan to issue in the near and long term. The Agenda is published twice a year, and for several years I have blogged about each publication.

Like the prior Agendas, the spring 2019 Agenda is broken down by (i) “Pre-rule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame has increased with 47 items as compared to 40 on the

January 28, 2020

SEC Investor Advisory Committee Meeting

On November 7, 2019, the SEC Investor Advisory Committee held a meeting on the topics of (i) whether investors use environmental, social and governance (ESG) data in making investment and capital allocation decisions; and (ii) the SEC’s recent concept release on harmonization of securities offering exemptions. For more on ESG matters, see HERE and for my blog on the SEC’s concept release on exempt offerings, see HERE. Both SEC Chair Jay Clayton and Commissioner Allison Herren Lee made remarks before the committee. As always, it is helpful in navigating our complex securities laws and regulatory priorities to stay informed on matters involving SEC decision makers and policy setters.

The Investor Advisory Committee was created by the Dodd-Frank Act to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank

November 19, 2019

SEC Spring 2019 Regulatory Agenda

In May 2019, the SEC published its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The Office of Information and Regulatory Affairs, which is an executive office of the President, publishes a Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”) with actions that 60 departments, administrative agencies and commissions plan to issue in the near and long term. The Agenda is published twice a year, and for several years I have blogged about each publication.

Like the prior Agendas, the Spring 2019 Agenda is broken down by (i) “Prerule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame has increased again with 40 items as compared to 36 last

July 9, 2019

The Under $300 Million Market Cap Class

Depending on whom you ask, a public company with less than $300 million market cap could be considered a micro-cap company, a penny stock (unless their share price is over $5.00), a lower middle market company or even middle market. Divestopedia defines “lower middle market” as “the lower end of the middle market segment of the economy, as measured in terms of annual revenue of the firms. Firms with an annual revenue in the range of $5 million to $50 million are grouped under the lower middle market category.” Wikipedia defines “middle market” as “companies larger than small businesses but smaller than big businesses that account for the middle third of the U.S. economy’s revenue. Each of these companies earns an annual revenue of between $100 million and $3 billion.” In a speech to the Greater Cleveland Middle Market Forum, SEC Commissioner Robert J. Jackson, Jr. defined a middle market company as those with trailing twelve-month sales of $50 million

March 19, 2019

SEC Rules For Disclosure Of Hedging Policies

In December 2018, the SEC approved final rules to require companies to disclose practices or policies regarding the ability of employees or directors to engage in certain hedging transactions, in proxy and information statements for the election of directors. The new rules implement Section 14(j) of the Securities Exchange Act of 1934 (“Exchange Act”) as mandated by the Dodd-Frank Act and will require the robust disclosure on hedging policies and practices including a description of any hedging transactions that are specifically permitted or disallowed. The proposed rules had initially been published on February 9, 2015 – see HERE.

Smaller reporting companies and emerging growth companies must comply with the new disclosure requirements in their proxy and information statements during fiscal years beginning on or after July 1, 2020. All other companies must comply in fiscal years beginning July 1, 2019. As foreign private issuers (FPI) are not subject to the proxy statement requirements under Section 14 of the Exchange Act,

March 12, 2019

SEC Fall 2018 Regulatory Agenda

In October 2018, the SEC posted its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The Office of Information and Regulatory Affairs, which is an executive office of the President, publishes a Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”) with actions that 60 departments, administrative agencies and commissions plan to issue in the near and long term. The Agenda is published twice a year.

Like the Spring 2018 Agenda, the fall Agenda is broken down by (i) “Prerule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame has jumped up with 36 items compared to 21 on the spring list.

Interestingly, following President Trump’s recent call to eliminate

November 27, 2018

Regulation A For Publicly Reporting Companies, Economic Growth and Regulatory Relief

Regulation A+ will soon be available for publicly reporting companies. On May 24, 2018, President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”) into law. Although the Act largely focuses on the banking industry and is being called the Dodd-Frank Rollback Act by many, it also contained much-needed provisions amending Regulation A+ and Rule 701 of the Securities Act.

The Act also amends Section 3(c)(1) of the Investment Company Act of 1940 to create a new category of pooled fund called a “qualifying venture capital fund,” which is a fund with less than $10,000,000 in aggregate capital contributions. A qualifying venture capital fund is exempt from the registration requirements under the 1940 Act as long as it has fewer than 250 investors. Section 3(c)(1) previously only exempted funds with fewer than 100 investors. The amendment is effective immediately and does not require rulemaking by the SEC, although I’m sure it will be followed by

July 3, 2018

SEC Spring 2018 Regulatory Agenda

On May 9, 2018, the SEC posted its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. According to the preamble, information in the agenda was accurate as of March 13, 2018. On April 26, 2018, SEC Chairman Jay Clayton gave testimony before the Financial Services and General Government Subcommittee of the House Committee on Appropriations regarding the SEC’s requested fiscal year 2019 budget. This blog will summarize the newest regulatory agenda and SEC upcoming budgetary requests.

Usually the agenda is separated into two categories: (i) Existing Proposed and Final Rule Stages; and (ii) Long-term Actions. The Spring 2018 agenda is broken down by (i) “Prerule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed

June 26, 2018

The SEC’s 2018 Flex Regulatory Agenda

In December 2017, the SEC posted its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. Prior to issuing the agenda, SEC Chair Jay Clayton had promised that the SEC’s regulatory agenda’s would be “more realistic” and he seems to have been true to his word.

The agenda is separated into two categories: (i) Existing Proposed and Final Rule Stages; and (ii) Long-term Actions. The Existing Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The semiannual list published in July 2017 only contained 33 legislative action items to be completed in a 12-month time frame, and the newest list is down to 26 items, whereas the prior fall 2016 list had 62 items.

The Unified Agenda of Regulatory and Deregulatory Actions

The Office of Information and Regulatory Affairs, which is an executive office of the

April 3, 2018

SEC Publishes Report on Access to Capital and Market Liquidity

On August 8, 2017 the SEC Division of Economic and Risk Analysis (DERA) published a 315-page report describing trends in primary securities issuance and secondary market liquidity and assessing how those trends relate to impacts of the Dodd-Frank Act, including the Volcker Rule. The report examines the issuances of debt, equity and asset-backed securities and reviews liquidity in U.S. treasuries, corporate bonds, credit default swaps and bond funds. Included in the reports is a study of trends in unregistered offerings, including Regulation C and Regulation Crowdfunding.

This blog summarizes portions of the report that I think will be of interest to the small-cap marketplace.

Disclaimers and Considerations

The report begins with a level of disclaimers and the obvious issue of isolating the impact of particular rules, especially when multiple rules are being implemented in the same time period. Even without the DERA notes that noted trends and behaviors could have occurred absent rule changes or reforms. The financial crisis

December 12, 2017

SEC Announces Regulatory Agenda

In July 2017 the SEC posted its latest version of its semi-annual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The agenda is as interesting for what’s on it, as for what isn’t. The semi-annual list only contains 33 legislative action items that the SEC intends to propose or finalize in the next 12 months. The fall 2016 list contained 62 items. As further discussed in this blog, the list does not include proposals on executive compensation, or many other Dodd-Frank mandated rules.

In the preamble to the list it indicates that it was completed in March, when Michael Piwowar was acting Chair of the SEC. Chair Jay Clayton and now Commissioner Michael Piwowar have been publicly like-minded, with a goal of directing the SEC towards assisting in small and emerging business growth and capital raise activities, while remaining tough on fraud. A summary of Chair Clayton’s first public speech as head of

September 12, 2017

SEC Commissioner Piwowar Speaks On The IPO Market

Nominate Us For ABA Journal’s Top Blog- HERE

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On May 16, 2017, SEC Commissioner Michael Piwowar gave the opening remarks to the SEC-NYU Dialogue on Securities Market Regulation. The focus of the SEC-NYU Dialogue was the current state of and outlook for the U.S. IPO market. Mr. Piwowar specifically spoke about reviving the U.S. IPO market.

The declining IPO market has been a topic of review lately, and was one of the main points discussed at the SEC’s Investor Advisory Committee meeting held on June 22. SEC Chair Jay Clayton weighed in at the Investor Advisory Committee, stating that he is “actively exploring ways in which we can improve the attractiveness of listing on our public markets, while maintaining important investor protections.” Mr. Clayton’s words echoed his statements made to the Senate confirmation hearing prior to his swearing in as chair.

This blog summarizes Commissioner Piwowar’s speech and of course offers my views and commentary.

Commissioner Piwowar’s Opening

July 18, 2017

Financial Choice Act 2.0 Has Made Progress

On June 8, 2017, the U.S. House of Representative passed the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act (the “Financial Choice Act 2.0” or the “Act”) by a vote of 283-186 along party lines. Only one Republican did not vote in favor of the Act. On May 4, 2017, the House Financial Services Committee voted to approve the Act. A prior version of the Act was adopted by the Financial Services Committee in September 2016 but never proceeded to the House for a vote.

The Financial Choice Act 2.0 is an extensive, extreme piece of legislation that would dismantle a large amount of the power of the SEC and strip the Dodd-Frank Act of many of its key provisions. The future of the Act is uncertain as it is unlikely to get through the Senate, although a rollback of Dodd-Frank remains a priority to the current administration. It is also possible that parts of the lengthy

June 13, 2017

The Acting SEC Chair Has Trimmed Enforcement’s Subpoena Power

In early February 2017, acting SEC Chair Michael Piwowar revoked the subpoena authority from approximately 20 senior SEC enforcement staff. The change leaves the Director of the Division of Enforcement as the sole person with the authority to approve a formal order of investigation and issue subpoenas. Historically, the staff did not have subpoena power; however, in 2009 then Chair Mary Shapiro granted the staff the power, in the wake of the Bernie Madoff scandal. Chair Shapiro deemed the policy to relate solely to internal SEC procedures and, as such, passed the delegation of power without formal notice or opportunity for public comment.

This is the beginning of what I expect will be many, many changes within the SEC as the new administration changes the focus of the agency from Mary Jo White’s broken windows policies to supporting capital formation. The mission of the SEC is to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation. Although

April 4, 2017

The Financial Choice Act 2.0

On February 9, 2017, the Chair of the House Financial Services Committee issued a memo outlining changes to the Financial Choice Act, dubbing the newest version the Financial Choice Act 2.0. The memo was not intended for public distribution but found its way in any event, causing a great deal of anticipation as to the amended Act itself. The actual amended Act has not been released as of the date of this blog.

Introduction

As a reminder, the Financial Choice Act, which was passed by the House Financial Services Committee on September 13, 2016, is an extensive, extreme piece of legislation that would dismantle a large amount of the power of the SEC and strip the Dodd-Frank Act of many of its key provisions. As first written, it would not be feasible for the Act to pass into law, but it certainly illustrates the extreme views of members of the House on the state of current over-regulation.

Moreover,

March 28, 2017

SEC Completes Inflation Adjustment To Civil Penalties

The SEC has completed the first annual adjustment for inflation of the maximum civil monetary penalties administered under the SEC. The inflation adjustment was mandated by the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015, which requires all federal agencies to make an annual adjustment to civil penalties.

The SEC adjusted civil penalties that can be imposed under the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1040, Investment Advisors Act of 1940 and Sarbanes-Oxley Act of 2002. Under the Sarbanes-Oxley Act of 2002 civil penalties are those imposed by the PCAOB in disciplinary proceedings against its accountant members.

The penalty increase applies to civil monetary penalties (“CMP”). A CMP is defined as “any penalty, fine, or other sanction that: (1) is for a specific amount, or has the maximum amount, as provided by federal law; and (2) is assessed or enforced by an agency in an administrative proceeding or by a federal court

March 21, 2017

House Passes Creating Financial Prosperity For Business And Investors Act

On December 5, 2016, the U.S. House of Representatives passed the Creating Financial Prosperity for Businesses and Investors Act (H.R. 6427) (the “Act”), continuing the House’s pro-business legislation spree. The Act is actually comprised of six smaller acts, all of which have previously been considered and passed by the House in 2016. The Act is comprised of: (i) Title I: The Small Business Capital Formation Enhancement Act (H.R. 4168); (ii) Title II: The SEC Small Business Advocate Act (H.R. 3784); (iii) Title III: The Supporting American’s Innovators Act (H.R. 4854); (iv) Title IV: The Fix Crowdfunding Act (H.R. 4855); (v) Title V: The Fair Investment Opportunities for Professionals Experts Act (H.R. 2187); and (vi) Title VI: The U.S. Territories Investor Protection Act (H.R. 5322).

Title I: The Small Business Capital Formation Enhancement Act (H.R. 4168)

This Act requires the SEC to respond to the findings and recommendations of the SEC’s annual Government-Business Forum on Small Business Capital Formation, which

February 7, 2017

House Passes Accelerated Access To Capital Act

On September 8, 2016, the U.S. House of Representatives passed the Accelerating Access to Capital Act. The passage of this Act continues a slew of legislative activity by the House to reduce regulation and facilitate capital formation for small businesses. Unlike many of the House bills that have been passed this year, this one gained national attention, including an article in the Wall Street Journal. Although the bill does not have a Senate sponsor and is not likely to gain one, the Executive Office has indicated it would veto the bill if it made it that far.

Earlier this year I wrote about 3 such bills, including: (i) H.R. 1675 – the Capital Markets Improvement Act of 2016, which has 5 smaller acts imbedded therein; (ii) H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within the SEC; and (iii) H.R. 2187, proposing an amendment to the definition of accredited investor. See

November 15, 2016

House Continues To Push For Reduced Securities Regulation

House Appropriations Bill

The House continues its busy activity of passing legislation designed to reduce securities and market regulations. In early July, the House passed H.R. 2995, an appropriations bill for the federal budget for the fiscal year beginning October 1st. No further action has been taken. The 259-page bill, which is described as “making appropriations for financing services and general government for the fiscal year ending September 30, 2017, and for other purposes” (“House Appropriation Bill”), contains numerous provisions reducing or eliminating funding for key aspects of SEC enforcement and regulatory provisions.

Earlier this year, I wrote this BLOG about three House bills that will likely never be passed into law. The 3 bills include: (i) H.R. 1675 – the Capital Markets Improvement Act of 2016, which has 5 smaller acts imbedded therein; (ii) H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within the SEC; and (iii) H.R. 2187, proposing

October 4, 2016

SEC Whistleblower Awards Pass $100 Million As It Continues To Crack Down On Confidentiality Provisions In Employment Agreements

The SEC has proudly announced that including a $22 million award on August 30, 2016, its whistleblower awards have surpassed $100 million. The news comes in the wake of two recent SEC enforcement proceedings against companies based on confidentiality and waiver language in employee severance agreements. Like two prior similar actions, the SEC has taken the position that restrictive language in confidentiality, waiver or settlement agreements with employees violates the anti-whistleblower rules adopted under Dodd-Frank.

Background – The Dodd-Frank Act Whistleblower Statute

The Dodd-Frank Act, enacted in July 2010, added Section 21F, “Whistleblower Incentives and Protection,” to the Securities Exchange Act of 1934 (“Exchange Act”). As stated in the original rule release, the purpose of the rule was “to encourage whistleblowers to report possible violations of the securities laws by providing financial incentives, prohibiting employment related retaliation, and providing various confidentiality guarantees.” Upon enactment of Section 21F, the SEC established the Office of the Whistleblower and created the SEC Whistleblower

September 27, 2016

House Passes More Securities Legislation

In what must be the most active period of securities legislation in recent history, the US House of Representatives has passed three more bills that would make changes to the federal securities laws. The three bills, which have not been passed into law as of yet, come in the wake of the Fixing American’s Surface Transportation Act (the “FAST Act”), which was signed into law on December 4, 2015.

The 3 bills include: (i) H.R. 1675 – the Capital Markets Improvement Act of 2016, which has 5 smaller acts imbedded therein; (ii) H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within the SEC; and (iii) H.R. 2187, proposing an amendment to the definition of accredited investor. None of the bills have been passed by the Senate as of yet.

Meanwhile, the SEC continues to finalize rulemaking under both the JOBS Act, which was passed into law on April 5,

March 15, 2016

SEC Gives Insight On 2016 Initiatives

SEC Chair Mary Jo White gave a speech at the annual mid-February SEC Speaks program and, as usual, gave some insight into the SEC’s focus in the coming year. This blog summarized Chair White’s speech and provides further insight and information on the topics she addresses.

Consistent with her prior messages, Chair White focuses on enforcement, stating that the SEC “needs to go beyond disclosure” in carrying out its mission. That mission, as articulated by Chair White, is the protection of investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. In 2015 the SEC brought a record number of enforcement proceedings and secured an all-time high for penalty and disgorgement orders. The primary areas of focus included cybersecurity, market structure requirements, dark pools, microcap fraud, financial reporting failures, insider trading, disclosure deficiencies in municipal offerings and protection of retail investors and retiree savings. In 2016 the SEC intends to focus enforcement on financial reporting, market structure, and the

March 8, 2016

The Stronger Enforcement Of Civil Penalties Act; A Push For Higher SEC Penalties

In July a Democratic senator and a Republican senator together introduced the Stronger Enforcement of Civil Penalties Act of 2015 (SEC Penalties Act), which would give the SEC the ability to levy much heftier penalties for securities fraud, and against recidivists. The Act was referred to the Senate Baking, Housing and Urban Affairs Committee for review and further action. The proposed SEC Penalties Act would increase the limits on civil monetary penalties and directly link the size of the penalty to the scope of harm and associated investor losses, and substantially increase the penalties for repeat offenders.

Background: A Trend Towards Increased Enforcement

The SEC Penalties Act continues a trend to deter securities law violations through regulations and stronger enforcement including the SEC Broken Windows policy, increased Dodd-Frank whistleblower activity and reward payments, and increased bad actor prohibitions. See my prior blog on bad actor prohibitions HERE.

The SEC Broken Windows policy is one in which the SEC is

September 22, 2015

SEC Congressional Testimony- Part I

On three occasions recently representatives of the SEC have given testimony to Congress. On March 24, 2015, SEC Chair Mary Jo White testified on “Examining the SEC’s Agenda, Operations and FY 2016 Budget Request”; on March 19, 2015, Andrew Ceresny, Director of the SEC Division of Enforcement, testified to Congress on the “Oversight of the SEC’s Division of Enforcement”; and on March 10, 2015, Stephen Luparello, Director of the Division of Trading and Markets, testified on “Venture Exchanges and Small-Cap Companies.” In a series of blogs, I will summarize the three testimonies. This first blog in the series summarizes the testimony of Mary Jo White.

Mary Jo White Testimony

On March 24, 2015, SEC Chair Mary Jo White gave testimony before the United States House of Representatives Committee on Financial Services. The testimony was titled “Examining the SEC’s Agenda, Operations and FY 2016 Budget Request.” As can be gleaned from the title, Mary Jo White was giving testimony in support

April 14, 2015

Say-On-Pay for Smaller Reporting Companies

Effective April 4, 2011, the SEC adopted final rules implementing shareholder advisory votes on executive compensation as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Upon enactment smaller reporting companies were given a two-year exemption from the compliance requirements. Smaller reporting companies are defined as entities which, as of the last business day of their second fiscal quarter, have a public float of less than $75 million. Beginning in 2013, that exemption expired and now these smaller reporting companies are required to include say-on-pay voting. Although smaller reporting companies have been subject to the rules for a year now, I still encounter questions from the entities as to their obligations and requirements under the rules.

The say-on-pay rules were implemented by adding Section 14A, which requires companies to conduct a separate shareholder advisory vote to approve the compensation of executives, which pay is disclosed pursuant to Item 402 (the “say-on-pay” vote).

May 6, 2014

SEC Guidance on Rules Disqualifying Bad Actors from Participating in Rule 506 Offerings

On December 4, 2013, the SEC updated its Compliance and Disclosure Interpretations (“C&DI’s”) including new guidance on the rules disqualifying bad actors from participating in Rule 506 offerings.

Background

The Dodd-Frank Act required the SEC to implement rules which disqualify certain Rule 506 offerings based on the individuals involved in the Issuer and related parties. On July 10, 2013, the SEC adopted such rules by amending portions of Rules 501 and 506 of Regulation D, promulgated under the Securities Act of 1933. The new rules went into effect on September 23, 2013. The new rule disqualifies the use of Rule 506 as a result of certain convictions, cease and desist orders, suspensions and bars (“disqualifying events”) that occur on or after September 23, 2013, and adds disclosure obligation in Rule 506(e) for disqualifying events that occurred prior to September 23, 2013.

Rule 506 provides that disqualifying events committed by a list of specified “covered persons” affiliated with the Issuer or

December 17, 2013

An Overview of Exemptions for Hedge Fund Advisors: Exemptions for Advisors to Venture Capital Funds, Private Fund Advisors with Less Than $150 Million in Assets Under Management, and Foreign Private Advisors – Part IV

The JOBS Act is not the only recent congressional act to change the landscape of hedge funds; the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) made significant changes as well.

In particular, the Dodd-Frank Act eliminated the oft relied upon exemption from registration for private hedge fund advisors for those advisors with fewer than 15 clients. While eliminating the private advisor exemption, Dodd-Frank created three new exemptions, which are the operable hedge fund advisor exemptions today. These exemptions are for:

(1) Advisors solely to venture capital funds;

(2) Advisors solely to private funds with less than $150 million in assets under management in the U.S.; and

(3) Certain foreign advisers without a place of business in the U.S.

Moreover, the

September 17, 2013

Will FINRA Rule Changes Related to Private Placement Further Deter Broker Dealers From Placing the Securities of Small Businesses?

On August 19, 2013, FINRA published Regulatory Notice 13-26 about the updated Private Placement Form that firms must file with FINRA when acting as a placement agent for the private placement of securities. A copy of the form is included with the regulatory notice at www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p325359.pdf. The Form went effective on July 1, 2013. FINRA has also updated the FAQs relating to the Private Placement Form. The updated Private Placement Form has six new questions:

Is this a contingency offering?
Does the issuer have

September 3, 2013

An Overview of Exemptions for Hedge Fund Advisors: Exemptions for Advisors to Venture Capital Funds, Private Fund Advisers with Less Than $150 Million in Assets Under Management, and Foreign Private Advisers – Part III

As the rules that will allow general solicitation and advertising for Rule 506(c) and 144A offerings near effectiveness, our firm has noticed a spike in inquiries related to small hedge funds and feeder funds. The JOBS Act is not the only recent congressional act to change the landscape of hedge funds; the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) made significant changes as well.

(1) Advisors

August 7, 2013

SEC has Finalized Rules Disqualifying Felons and Other “Bad Actors” from Rule 506 Offerings

On July 10, 2013, the same day the SEC has adopted final rules eliminating the prohibition against general solicitation and advertising in Rules 506 and 144A offerings as required by Title II of the JOBS Act, the SEC adopted new rules disqualifying felons and other bad actors from participating in Rule 506 offerings as required by Section 926 of the Dodd-Frank Act.

Background

The Dodd-Frank Act required the SEC to implement rules which disqualify certain Rule 506 offerings based on the individuals involved in the

July 31, 2013

An Overview of Exemptions for Hedge Fund Advisors: Exemptions for Advisors to Venture Capital Funds, Private Fund Advisers with Less Than $150 Million in Assets Under Management, and Foreign Private Advisers – Part II

As the delayed JOBS Act rule changes become imminent, our firm has noticed a spike in inquiries related to small hedge funds and feeder funds.The JOBS Act is not the only recent congressional act to change the landscape of hedge funds; the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) made significant changes as well.

In particular, the Dodd-Frank Act eliminated the oft relied upon exemption from registration for private hedge fund advisors for those advisors with fewer than 15 clients.While eliminating the private advisor exemption, Dodd-Frank created three new exemptions, which are the operable hedge fund advisor exemptions today.These exemptions are for:

(1) Advisors solely to venture capital funds;

(2) Advisors solely to private funds with less than $150 million in assets under management in the U.S.; and

(3) Certain foreign advisers without a place of business in the U.S.

Moreover, the Dodd-Frank Private Fund Investment Advisers Registration Act of 2010 (the “Advisers Act“) imposed

May 21, 2013

An Overview of Exemptions for Hedge Fund Advisers: Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers with Less Than $150 Million in Assets Under Management, and Foreign Private Advisers – Part I

As I have blogged about in the past, the JOBS Act will have a significant impact on hedge funds, and in particular smaller hedge funds. As the delayed rule changes become imminent, our firm has noticed a spike in inquiries related to small hedge funds and feeder funds. The JOBS Act is not the only recent congressional act to change the landscape of hedge funds; the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) made a significant impact as well.

In particular, the Dodd-Frank Act eliminated the oft-relied upon exemption from registration for private hedge fund advisers for those advisers with fewer than 15 clients. While eliminating the private adviser exemption, the Dodd-Frank created three new exemptions, which are the operable hedge fund adviser exemptions today. These exemptions are for:

(1) Advisers solely to venture capital funds;

(2) Advisers solely to private funds with less than $150 million in assets under management in the U.S.; and

(3) Certain

May 16, 2013

COMPREHENSIVE REVIEW OF TITLE I OF THE JOBS ACT AS RELATED TO EMERGING GROWTH COMPANIES

On April 5, 2012, President Obama signed the Jumpstart our Business Startups Act (JOBS Act) into law. The JOBS Act was passed on a bipartisan basis by overwhelming majorities in the House and Senate. The Act seeks to remove impediments to raising capital for emerging growth public companies by relaxing disclosure, governance and accounting requirements, easing the restrictions on analyst communications and analyst participation in the public offering process, and permitting companies to “test the waters” for public offerings. The following is an in-depth review of Title I of the JOBS Act related to Emerging Growth Companies.

Introduction – What is an Emerging Growth Company?

The JOBS Act created a new category of company: an “Emerging Growth Company” (EGC). An EGC is defined as a company with annual gross revenues of less than $1 billion that first sells equity in a registered offering after December 8, 2011. In addition, an EGC loses its EGC status on the earlier

November 14, 2012

House Subcommittee Demands Explanation of SEC’s Delayed JOBS Act Rulemaking

Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors. However, on June 27, 2012 Mary Schapiro, Securities and Exchange Commission chairman told the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs that the SEC would not meet the 90 day deadline. At that time, Ms. Schapiro told the U.S. House committee that the SEC expected the rules to be implemented by late summer 2012.

The SEC scheduled a hearing on the general solicitation rules for August 22, 2012, but then rescheduled the hearing for August 29, 2012. The House is not happy with the delay. In a

August 27, 2012

SEC Will Not Meet Deadline to Remove Ban on General Solicitation and Advertising in Private Offerings and Hedge Funds

The SEC won’t make the 90-day deadline to draft rules and enact Title II of the JOBS Act eliminating the ban on advertising and general solicitation for private placements and allowing advertising by hedge funds, Mary Schapiro, Securities and Exchange Commission chairman told a U.S. House oversight panel on June 27, 2012. In prepared testimony, Mary Schapiro told a U.S. House oversight panel that certain rule writing deadlines imposed by the JOBS Act “are not achievable.”

June 29, 2012

Dodd-Frank Act Changes Definition Of Accredited Investor Effective Immediately

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). After many revisions, the final Dodd-Frank Act has only minor effects on securities Issuers and their investors. The primary change, which takes effect immediately, is a modification to the definition of “accredited investor” contained in the Securities Act of 1933. In particular: (i) as it relates to natural persons, the $1,000,000 net worth standard must now be calculated excluding the value of the primary residence of such natural person; and (2) the Securities and Exchange Commission (SEC) has been mandated to review the entire accredited investor definition within four (4) years and make appropriate changes within that time, without additional act of Congress.

Increased Net Worth Requirements

This change effectively increases the net worth requirements for investors, whose largest asset is often their primary residence. Although the SEC has not yet issued any guidance or other information on the change,

August 13, 2010

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